Key features

Product features

Key Message:

  • As a hybrid of a stock and a fund, an ETF has the following key features.

Exchange trading - Like stocks, the units of ETFs are tradable on the stock exchanges.

Trading price vs. Net Asset Value (NAV) - Each ETF has an NAV that is calculated with reference to the market value of the investments held by it. However, the trading price of an ETF is determined by the market supply and demand, so may not be equal to its NAV.

Indicative NAV per unit - An indicative NAV per unit means a measure of the intraday value of the NAV per unit of an ETF based on the most up-to-date information. An ETF is required to provide the real time or near-real time indicative NAV per unit (updated at least 15 seconds during trading hours) through the ETF’s own website or other designated channels.

Normally, the trading price of an ETF is not expected to deviate significantly from its NAV. Therefore, it is always a good practice to check the indicative NAV before trading an ETF. Investors should exercise extra caution if the trading price of the ETF is at a large premium or discount to the indicative NAV.

Dividend entitlement - An ETF may or may not distribute dividends, depending on its dividend policy.

Fees and charges - An ETF incurs certain fees and expenses such as management fees charged by the ETF manager and other administrative costs. These fees and expenses will be deducted from the ETF's assets and the NAV will be reduced accordingly. Trading ETFs on the SEHK incurs transaction costs such as transaction levy and brokerage commission.

Regulated fund - Like other authorized funds, an ETF has to comply with the relevant regulatory requirements imposed by the SFC. However, you should note that SFC authorization does not imply recommendation of the product.

Index tracking (for passive ETF only)  - To achieve the index tracking objective, a passive ETF manager may adopt one or more of the following strategies:

  • Full replication by investing in a portfolio of securities that replicates the composition of the underlying index;
  • representative sampling by investing in a portfolio of securities featuring a high correlation with the underlying index, but is not exactly the same as those in the index; or
  • synthetic replication through the use of financial derivative instruments to replicate the index performance. Synthetic replication can raise efficiency and reduce cost. Where a passive ETF tracks a market (or an index in a market) that has restricted access, it can adopt this replication strategy.

Price index and total return index (for passive ETF only) - Many passive ETFs track spot market indices, which measure the performance of securities traded on spot markets. Typically, a spot market index tracked by a passive ETF is either a price index or a total return index.

  • A price index only measures changes in the prices of the index's constituent securities.
  • A total return index takes into account both changes in the prices of the index's constituent securities and actual dividend/interest payments. The dividends/interest payments of the index’s constituent securities are assumed to be re-invested into the index portfolio according to their respective weightings.

For details about the different types of futures indices tracked by a passive ETF, you may refer to Futures-based ETF.